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Saturday, December 6, 2008

After an historic election, entrepreneurs, along with the rest of the country, await the inauguration of a new President with an ambitious agenda. Given the nearly unprecedented financial situation and two ongoing wars, entrepreneurs are understandably anxious that their concerns will get short shrift. In conversations with SmallBiz, business owners spoke of the need to restore confidence in a badly wounded economy. And they repeatedly raised the same three issues: soaring health-care costs, reduced access to credit, and fear of higher taxes. "There is a lot of anxiety out there among my clients," says Angie Strunk, managing director and founder of Triserve, a 22-person Cinncinati-based payroll and accounting company with $2 million in annual sales. She says her small business clients "are worried about the next Administration raising taxes, they are worried about the economy, and about these bailouts, which are scary." Here's what business owners can realistically expect from the new President, and when it might happen.

CONFIDENCEAndy Vabulas is chief executive of I.B.I.S. in Norcross, Ga., a $15 million, 58-person company that helps businesses install and use Microsoft applications. He says job one for the Obama Administration must be restoring confidence in the economy. Vabulas says business from his small and midsize clients is down 25% this year—and that the first two weeks of November saw an even more dramatic pullback. "They are not spending money right now," he says.

Restoring confidence in the economy is a tall order, but two important elements will undoubtedly be job and economic growth. President-elect Barack Obama and the new Congress are likely to view an economic stimulus package as a critical tool for addressing both.

The betting is that the stimulus package will pass, and is likely to hit $300 billion, whether or not a piece of it is passed before President George W. Bush leaves office. Expect to see aid to states and cities facing budget shortfalls, extended unemployment benefits and food stamps, and big infrastructure spending. According to Gus Faucher, director of macroeconomics at Moody's Economy.com, every dollar spent on infrastructure projects or extended unemployment benefits will add $1.59 and $1.64, respectively, to gross domestic product. And Ross Eisenbrey, a vice-president at the Economic Policy Institute, points out that small businesses, especially construction-related companies, would be helped greatly by a boost in infrastructure spending.

But vanquishing the pessimism that currently pervades the markets and economic decision-making will also require some symbolic moves. Faucher says people want to see that "the President understands what is going on in the economy and is acting not reactively, but proactively." Thus, the right economic team is critical. National Federation of Independent Business Executive Vice-President Dan Danner is encouraged that so far, the President-elect seems to be surrounding himself with experienced advisers, including likely Treasury Secretary Timothy Geithner. Many are from the Clinton Administration, "seasoned pros who have been there and who understand the importance of business."

HEALTH CAREWhile calming the economic waters clearly comes first, entrepreneurs are hoping for relief on a longer-term threat: soaring health-care costs. Wendy S. White, founder and president of $2.5 million online marketing firm Siren Interactive in Oak Park, Ill., expanded coverage for her 20 employees this year. She says she had to do it to stay competitive, but her premiums went up almost 50%. "It's killing me," she says. White wants to see health care addressed quickly, but she isn't expecting a freebie. "I think I'm going to end up paying higher taxes," she says. "But if [Obama] can help with health care, I'm O.K. with that."

Obama's proposed fix for health care is still short on specifics—one of the most important being which companies qualify as "small."

Still, this much is clear: Large companies would have to provide coverage for employees or help pay for a new insurance exchange where individuals could buy their own insurance, mostly from private insurers. The government would protect insurers against catastrophic losses in return for lower premiums. Those who still couldn't afford insurance would likely get some sort of subsidy. Small businesses would get a 50% tax credit on their health insurance costs.

Chances are you'll be hearing serious discussions about this sooner than you might expect, although budget troubles could result in a less dramatic overhaul or a slower phase-in. The President-elect has announced health-care reform as one of his priorities and his solution is largely a private-sector one, which could be relatively palatable to business. Obama has a strong position with Congress right now, which creates urgency. Already, Senator Max Baucus (D-Mont.), chairman of the Senate Finance Committee, has put out a blueprint for reform that is similar in many ways to Obama's. All in all, John Arensmeyer, founder and chief executive of the trade group Small Business Majority, puts the odds of comprehensive health insurance reform getting done in 2009 at "better than 50%."

CREDIT CRUNCHWhile the government's $700 billion may stabilize some big Wall Street firms, the banks have yet to open the credit coffers. According to the Federal Reserve Board's October Senior Loan Officer Opinion Survey on Bank Lending Practices, 75% of large banks operating in the U.S. had tightened standards on loans to small business, up from 65% in July. "Banks need to open up their doors and start giving small businesses access to capital," says Mark Deion, an independent consultant in Warwick, R.I.

The central question is how to free up credit without encouraging banks to make loans that will become problems down the road. One way to do this would be to revitalize SBA lending, perhaps by reducing or eliminating fees and allowing the agency to make emergency loans to small businesses. Next year's stimulus package is expected to include some combination of these elements.

Using the government bailout, or TARP (Troubled Asset Relief Program), to get banks lending may be more problematic. There's no requirement that banks increase lending after receiving TARP funds, but Congress reserves the right to make that demand retroactively. For now, federal officials are wary of trying to micromanage the lending process, for fear of ending up with more bad loans. The remaining $92 billion in capital infusions expected to come from TARP are likely to go in part to small banks, which are major lenders to small business.

TAXESBusiness owners' greatest concern about the next Administration can be summed up in one word: taxes. "Small businesses are very fearful of being overtaxed and overburdened. What incentive is there to work very hard if you hardly get any gains for it?" asks Ann Blackburn, a leadership consultant in Lafayette, Calif. The first tax break for small businesses will probably come in the stimulus bill, which is expected to include an extension of the $250,000 limit on the first-year depreciation of equipment (otherwise, the deduction will fall to about $125,000 in 2009) and possibly Obama's promised cut in the capital gains tax to zero for investments in small businesses and startups.

Daniel Clifton, head of policy research at Washington's Strategas Research Partners, suspects income taxes will go up even for some making less than $200,000. Obama, he says, "just doesn't get the revenue he needs by raising taxes only on those making over $200,000." But most experts say those tax hikes will have to wait at least until the end of 2009, given the weak economy. "You don't want to raise taxes in the middle of a recession," says Economy.com's Faucher. The end of 2009 will probably also see Obama attempt to hike the rate on other capital gains to about 20% from 15%.

As for hikes in FICA taxes—a worrisome issue during the campaign—proceeds from FICA taxes could only go toward funding Social Security or Medicare. So FICA tax rates are unlikely to change until Congress or the Administration attempts to reform those two programs, says Anne N. Mathias, research director at investment firm Stanford Group. With all the Obama team has on its plate, that may not be for quite some time.

Tuesday, December 2, 2008

Bad business news is stressful for small-business owners and employees alike.

You know it's a bad sign when spa owners are stressing out.

Planet Beach Franchising, which oversees some 390 spas worldwide from its Marrero, La., headquarters, has seen sales dropping off this year as consumers tighten their belts to cope with the slumping economy.

A positive outlook can help defeat downturn depression.

"Looking at things long term, you worry about how you're going to come up with your numbers at the end of the month," says Angelina Vicknair, a company spokesperson. "It's a stressful time."

Planet Beach is not alone.

While New York area cardiologists have reported a rise in hospital visits by Wall Street executives complaining of chest pains, Main Street business owners aren't doing much better.

"I'm stressed out and it's freaking me out," says Joy Gendusa, the owner of PostcardMania, a Clearwater, Fla.-based marketing firm with more than 150 employees. "Before any of this happened we embarked on building a new corporate headquarters. We're going ahead with that now, but had I known what was coming, I might've used that money to drum up more business instead. It's very stressful."

Like many small employers, Gendusa says she's keeping a close eye on staff these days. According to the American Psychological Association, eight out of 10 Americans are feeling anxious about the economy, with many getting increasingly angry, irritable and fatigued. In the trade group's annual survey conducted between April and September -- about the time the feds seized control of Freddie Mac, Fannie Mae and Washington Mutual (which was later sold to JPMorgan Chase), and gave AIG $85 billion for 80 percent of its stock -- more than half of 7,000 respondents said they're worried about job security and their ability to provide basic needs for their family. Fifty-three percent reported losing sleep.

All that built-up anxiety is taking a toll on workplace productivity. According to Workplace Options, a work-life services firm based in Raleigh, N.C., roughly half of 711 adults surveyed said recent financial stress was making it hard for them to perform well on the job, citing rising anxieties over everything from personal day-to-day expenses to retirement savings.

"Financial problems affect emotional and physical health, and ultimately trickle down to the workplace, where employees must juggle these worries with hectic schedules," says Workplace Options CEO Dean Debnam.

It doesn't help that a slew of recent small-business surveys show employers are just as jittery as their workers. According to Discover, 74 percent of 1,000 owners polled nationwide in October felt the economy was getting worse. Seventy-nine percent of 250 owners surveyed by the National Small Business Association said they're bracing for a protracted recession. And based on a survey of 700 owners, the National Federation of Independent Business's small-business optimism index for September was flat, marking the longest stretch of recession-level readings since the monthly index was launched in 1973.

"Small-business owners are feeling less confident in nearly every way, particularly with banks' ability to keep their money safe," says Todd McCracken, president of the National Small Business Association, citing declining home values, tighter credit, and failing financial institutions as major concerns.

Yet, with so many forces at play, what's an employer to do? According to Kathleen Hall, the founder of the Atlanta-based Stress Institute and a former Wall Street broker, everyone needs to step back and take a breather, for starters.

"Stress is like battery acid on the brain," says Hall, "But there are some amazingly simple low-cost things employers can do to relief stress at the office," she says.

Among other approaches, Hall recommends taking the time to listen to quiet music, which studies have shown directly affects brain waves and gives your immune system an immediate boost. Just memorizing and repeating a positive affirmation can also lower cortisol levels that cause stress. She also prescribes healthy eating and regular activity, like walking around your office building or climbing a fleet of stairs, rather than taking the elevator. Texting or emailing friends, or just sharing lunch with a co-worker, can raise oxytocin and endorphins levels, Hall says.

"Responsible CEOs and business owners need to accept that these pressures are going to affect their bottom line. They've got to be aware of how their staff is coping and what they can do to help," she says.

For managers at Planet Beach, that's a cinch.

"We have our own spa room," Vicknair says. "We have all the equipment here. It's a nice bonus." She says employees are encouraged to take 20 minutes or so to unwind with everything from a relaxation massage to oxygen therapy.

Joy Gendusa of PostcardMania says getting away from work helps her dispel thoughts that everything is spiraling out of control. In late October, Gendusa and her husband took a weeklong trip to New York to check out new restaurants and leave her business behind.

"Sometimes you just need to sneak away and get a panoramic view of things," she says. "Even just seeing a busy restaurant let's you know that people are still spending out there, and that's reassuring."